Mortgage Points Break-Even Calculator
Paying discount points buys a lower interest rate for cash upfront. This shows how long it takes the lower payment to repay that cash — and how much interest you'd save if you keep the loan.
Break-even point
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Break-even = points cost ÷ monthly savings. Points pay off only if you keep the loan well past the break-even month, so they suit borrowers who plan to stay put and not refinance.
What discount points are
Discount points are prepaid interest. You pay the lender a lump sum at closing and, in exchange, they lower your interest rate for the life of the loan. One point usually costs 1% of the loan amount and lowers the rate by somewhere around a quarter point, though the exact trade varies by lender and day.
Because you're paying cash now to save a little every month, points are a bet on time: the longer you keep the loan, the more those monthly savings add up, and the better the bet looks. Keep the loan only a short while and you never recover the upfront cost.
The break-even math
The calculator compares the monthly payment at your two rates, then divides the cost of the points by the monthly savings:
If points cost $8,000 and lower your payment by about $132 a month, you recover the cost in roughly 61 months — just over five years. Stay past that, and the rest is savings; over a full 30-year term the same buy-down can save tens of thousands in interest.
When points are — and aren't — worth it
- Worth it: you'll keep the loan well beyond the break-even point, you have cash to spare at closing, and you're confident you won't refinance soon.
- Not worth it: you might move or refinance within a few years, or you'd rather put that cash toward your down payment to shrink the loan or avoid PMI.
It's also worth comparing points against simply making a larger down payment or keeping the cash in reserve. The right answer depends on how long you'll hold the loan and what else the money could do.
Frequently asked questions
How much does one point lower my rate?
There's no fixed amount — it varies by lender and market conditions, often around 0.25% per point but sometimes more or less. Use the two rates your lender actually quotes rather than a rule of thumb.
Are points the same as a larger down payment?
No. A larger down payment reduces the loan balance; points reduce the interest rate. Both lower your payment, but points only pay off if you keep the loan long enough to recover the upfront cost.
Can I deduct points on my taxes?
Sometimes, depending on whether it's a purchase or refinance and your tax situation. This calculator doesn't model taxes; ask a tax professional about your specifics.